Avanex buys Alcatel Optronics, parts of Corning

Alcatel and Corning are the latest optical networking equipment suppliers to exit the optical components business, following Nortel, Agere, ADC and Marconi.

Avanex will acquire all outstanding equity of Alcatel’s optical components division, including the key Alcatel Optronics locations in Nozay, France and Livingston, UK (the former Kymata). Assets to be purchased from Corning include the company’s optical amplifier facility in Erwin, NY and its optical components plant in Milan, Italy (purchased by Corning from Pirelli).

Corning also said it would close its Corning Lasertron facility in Bedford, MA by the end of this year, eliminating approximately 150 positions. Lasertron manufactures photonic components including pump lasers.

The deal
The combined stock transaction is valued at approximately $63.5 million based on Avanex’s closing price of $1.12 per share on May 9, 2003. Alcatel and Corning will receive as consideration 28% and 17% respectively of Avanex’s outstanding common stock of the post-transaction company, which currently translates into approximately 35.2 and 21.4 million shares.

The companies anticipate closing the transaction by the end of Avanex’s first fiscal quarter, ending September 30, 2003, subject to customary closing conditions.

Alcatel is expected to contribute over $110 million in cash to Avanex. Also, the two companies will enter into a supply agreement whereby Avanex will supply solutions for Alcatel’s optical networking products over a three-year period.

Corning is expected to contribute over $20 million in cash, to be finalized at closing. Alcatel and Corning will assign approximately 1,400 patents to Avanex and additionally license several thousand patents to Avanex as part of the transaction.

Alcatel
Alcatel’s optical component division had sales of EUR 7.3 million ($8.4 million) for its March 2003 quarter. For 2002, Alcatel Optronics posted a net loss of EUR 418.8 million on sales on EUR 84.1 million. On announcing these results, Alcatel said that the sale or closure of the Optronics unit was under consideration.

The division’s products include lasers, photodetectors, optical amplifiers, transponders and key passive devices such as arrayed waveguide gratings and fiber Bragg grating filters. Alcatel’s optical component division had 950 employees as of March 31, 2003.

Commenting on the transaction, Christian Reinaudo, executive VP of Alcatel, said, "With this agreement, we are contributing Alcatel Optronics’ outstanding technical expertise to an enlarged and credible partner that will support our optical networking activities, which are key to Alcatel. We have secured the future for Alcatel Optronics, in line with our strategy announced at the beginning of the year to find an alternative solution for our optical components business."

Corning
The business lines to be acquired from Corning had sales of approximately $11 million for the March 2003 quarter. Key products include optical amplifiers, dispersion compensation modules, lithium niobate and electro-absorption modulators, and micro-optics products. These business lines had 490 employees as of March 31, 2003.

Wendell Weeks, Corning’s president and CEO, said, "We have been committed to reaching a decision on the future of our Photonics Technologies business by the middle of this year. This transaction enables us to preserve the largest number of jobs possible while we continue to focus on achieving our goal of returning to profitability in 2003."

Weeks added that Corning is committed to its remaining telecommunications businesses and continues to invest in extending its market-leading optical fiber, cable and hardware and equipment businesses.

Avanex
Avanex supplies the communications industry with what it describes as photonic processors, which perform functions such as transmission, routing and switching, and wavelength conditioning.

Avanex says that the acquisitions will combine the complementary optical business capabilities of three of the industry’s leading providers of optical components, modules and subsystems for fiber-optic transmission networks.

The post-transaction company will offer one of the broadest lines of advanced optical technologies and intelligent photonic solutions to enhance the speed and capacity of optical communications systems. After the acquisitions, Avanex will offer products that address optical wavelength generation and modulation, multiplexing and demultiplexing, signal amplification, wavelength routing and dispersion compensation.

Walter Alessandrini, chairman, president and CEO of Avanex, said "Our acquisition of these two complementary businesses is a logical, timely and appropriate step for success in today s market environment. These acquisitions position Avanex as an industry leader with a broad customer base, full suite of industry-leading products, competitive cost structure, strong manufacturing expertise and worldwide R&D capabilities."

“Avanex s strategy is to be the leading supplier of optical solutions," continued Alessandrini. "Our customers want suppliers who can deliver end-to-end solutions that are cost-effective and of the highest quality. After the acquisitions, Avanex will have the scale and resources to effectively supply our customers with their product needs."

Avanex had revenues of $5.4 million for the quarter ended March 31, 2003, down from $10.2 million in the first quarter of 2002. The company s net loss was $10.4 million, or $0.15 per share, for the quarter ended March 31, 2003, compared to a net loss of $30.1 million, or $0.45 per share, for the quarter ended March 31, 2002.